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Cord-Cutting’s Future May Resemble Cable’s Present

hand pointing a remote control at an out-of-focus TV screen with a streaming video service player menu displayed.

Streaming appears to be the future of scripted video entertainment. But with new entrants coming to the market, it is becoming clear that the future may end up looking a lot more like cable TV than cord-cutters originally hoped.

Last week, Apple announced its long-anticipated Apple TV Plus streaming service, which is due to launch sometime this fall. The presentation was light on details, including cost, but given Apple’s clout and the fact that it has already announced projects on the service involving Oprah Winfrey, Jason Momoa, Steven Spielberg and J.J. Abrams, it is clear that the tech company is taking the adage “go big or go home” seriously.

I am sure that Apple TV Plus will offer some high-quality shows. Quality original content is, by and large, not the problem with any major streaming service these days. FX Networks reported that 495 original scripted TV shows aired in 2018, a new record (if slightly fewer than the 520 shows FX’s CEO predicted earlier in the year). Those shows represent an 85 percent increase compared to what was airing in 2011. About a third of the 2018 shows debuted directly on a streaming service, while slightly fewer shows debuted on broadcast TV and basic cable last year than in 2017.

Even more major streaming players are set to arrive this year. In addition to Apple, Disney will launch its Disney Plus service, bringing together not only Disney classics but content from Marvel, Star Wars, Pixar and the company’s recently acquired 21st Century Fox library. WarnerMedia, which is owned by AT&T, plans to offer a three-tiered service, with some content supported by ads, as well as ad-free premium content. NBCUniversal, which is owned by Comcast Corp., anticipates launching a stand-alone service sometime in 2020, including a free ad-supported level and an ad-free subscription option.

Any of these services may excite you in isolation, depending on which will carry your favorite shows. But the proliferation of services overall will heighten an existing problem: Consumers only have so much to spend per month on entertainment, in both dollars and hours. Even in today’s streaming landscape, there is more high-quality content available than any one person can keep up with. As services splinter apart, the odds decrease that any one service, or even any few, will carry the bulk of the shows that interest you.

Say you’re a major fan of the classic ‘90s sitcom “Friends.” Today, you can stream it in its entirety on Netflix, a service you likely already subscribe to if you have any streaming services at all. Netflix spent a reported $100 million to ensure you can keep streaming “Friends” for the rest of 2019. But WarnerMedia owns “Friends” and will almost certainly feature the series on its own platform whenever it launches. Could Warner offer the series in both places after 2019? Sure, in theory. But keeping “crown jewel” properties exclusive to Warner’s offering makes more business sense, so it seems the more likely scenario. Similarly, Disney currently licenses content to Netflix that will soon migrate exclusively to Disney Plus.

With so much content already available and more in the pipeline, we will very quickly hit critical mass where streaming services are concerned. One service’s win will mean a different service’s loss, both in terms of content and subscribers. Investors should be very wary of letting enthusiasm for the brave new world of cord-cutting carry them away in this environment.

In the short term, wins and losses may be rapid for streaming services. For most services today, it is relatively easy to start and stop a subscription on a monthly basis – certainly easier than canceling your typical gym membership or cable subscription. Proactive viewers can therefore evaluate their loyalty to each service on a month-to-month basis. In fact, many people, including me, already are doing this. I subscribe to Hulu whenever a new season of “The Handmaid’s Tale” arrives and suspend my subscription once I’ve finished it, though I watch other Hulu offerings as long as my subscription is active. I also subscribe to Sling TV every year to watch the Major League Baseball playoffs – it helps that my New York Yankees seem to make it to the playoffs every year – and cancel as soon as they’re over.

The number of people frequently stopping and starting subscriptions is bound to increase as high-profile shows are split among an increasing number of services. If enough people do this regularly, it will cause problems for streaming companies.

For now, it seems that services are mainly raising monthly prices – to ramp up their original offerings, offset departing subscribers or both. Netflix announced in January that it would raise prices for all of its plans, and Sling TV and YouTube TV both raised prices in March.

From a business point of view, small price increases and new content alone probably won’t offset customers’ tendency to dip in and out of various services. Making it harder to unsubscribe would mainly annoy customers and make them think twice about coming back in the future. The likeliest answer, in my view, is that services will start instituting longer-term contracts. For providers like Hulu and Amazon, which offer add-on premium channels already, that contract may also include a discount if you bundle several subscriptions together. Internet service providers could also get into the bundle act.

Congratulations. You’ve just re-invented cable.

Many services will come through the upcoming battle for streaming viewers just fine. But others won’t, and someone is likely to lose a lot of money along the way. The shakeout may already be starting.

Bloomberg recently reported that YouTube was canceling future plans to produce original content for its YouTube Premium service, with anonymous sources citing the cost involved in keeping up with major players like Netflix and Amazon’s Prime Video. The sources said that YouTube Premium (formerly YouTube Red) will shift its focus purely to music, though the actual future of the service has been muddied by subsequent denials from YouTube itself. Assuming YouTube really is abandoning original scripted content, it is good news for YouTube’s competitors, who now face one fewer service asking for consumers’ monthly dollars and attention. And it is good news for me, since it means that I should eventually be able to watch YouTube’s “Karate Kid”-inspired series, “Cobra Kai,” for free. But it is bad news for anyone who bet that YouTube, which is owned by Google, would be a major player in the future of scripted entertainment.

As I have written in this space before regarding both ride-hailing and online food delivery, investors should be careful to separate their feelings as a consumer from their analysis of an investment’s risk. Overall, major changes will soon arrive in the world of streaming. At this point, it is simply too early to say which companies will be left standing when the new normal takes hold.

Vice President and Chief Investment Officer Paul Jacobs, of our Atlanta office, contributed several chapters to our firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55, including Chapter 12, “Retirement Plans;” Chapter 15, “Investment Approaches and Philosophy;” and Chapter 19, “A Second Act: Starting a New Venture.”

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